Understanding Budget 2025: Why Treasury Made These Choices

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National Treasury recently presented its response to Parliament on the 2025 Budget. The purpose of this presentation was to explain the tax and spending choices made in the Budget, especially in light of rising costs in healthcare, education, and infrastructure. It also aimed to help Parliament and the public understand why certain tax changes were introduced, and why other options—like raising income or corporate tax—were not used.

For accountants, these developments bring important updates that will affect tax compliance, planning, and client advisory in the months ahead.

🔺 Key Tax Developments

Treasury has introduced several tax measures to raise permanent revenue, while trying to limit the impact on the economy.

• VAT will rise from 15% to 15.5% on 1 May 2025, with a further 0.5% increase expected in 2026/27.

• Personal income tax brackets, rebates, and medical credits will not be adjusted for inflation, pushing more income into higher brackets.

• Alcohol and tobacco excise duties will go up above inflation.

• No increase to the fuel or RAF levies, with diesel refund relief extended to support farming and transport.

• Zero-Rated VAT items were expanded to provide relief including canned vegetables, offals, and dairy liquid blends to help lower-income households.

🧾 Why Not Raise PIT or CIT?

Treasury explained why VAT was preferred over raising personal or corporate income tax.

• South Africa already has a high PIT-to-GDP ratio and a high top marginal rate.

• Past PIT and CIT hikes did not deliver expected revenue, as individuals and firms adjusted behaviour to avoid higher taxes.

• Corporate tax increases hurt investment and economic growth. Treasury warned that raising CIT could have the biggest negative impact on GDP.

• Although wealth taxes exist, expanding them would risk losing high-net-worth individuals and have limited revenue potential.

📉 Broader Fiscal Context

The tax increases are part of a wider strategy to fund critical services, manage debt, and restore fiscal sustainability.

• Government aims to raise R28 billion in 2025/26 and R14.5 billion in 2026/27 in permanent revenue.

• Despite the tax increases, Treasury is trying to limit direct tax burdens, preserve investment, and maintain macroeconomic stability.

• Spending is being directed toward public infrastructure, job creation, and the extension of social grants like the COVID-19 SRD.

• Reforms are also planned to strengthen budgeting, state capability, and the role of public-private partnerships (PPPs).

🛠️ What This Means for Accountants

These tax policy changes will affect tax planning, compliance processes, and client communications:

• VAT Planning: Accountants should prepare VAT-registered clients for pricing updates, system changes, and customer communication ahead of the 1 May VAT increase. Refer to our article published on the VAT Rate is Going Up! Are You Ready for the Changes on how you can prepare yourself and your clients.

• Bracket Creep Awareness: Help clients understand the impact of no inflation adjustment—especially those near tax threshold increases.

• Compliance Focus: With R7.5 billion allocated to SARS over the next three years, accountants can expect tighter compliance enforcement, especially around VAT and personal tax.

• Sector Impacts: Clients in retail, alcohol, tobacco, and logistics will need help navigating the excise tax changes and diesel refund updates.

Download the presentation by national Treasury here.